U.S. Banks Finding Closed Doors as China Opens to Europe

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June 27 – China is opening the door to European banks faster than U.S. ones according to a Financial Times article published today.

The article, by Sundeep Tucker, asserts that European investment banks have established momentum over their U.S. rivals in the race to develop Chinese securities joint ventures, as it appears Beijing is delaying the entry of Wall Street firms into the marketplace.

Tucker writes: “In the latest development Deutsche Bank has agreed a tie-up with Shanxi Securities to establish a venture that will offer investment banking services to mainland clients. It is expected to receive approval this year.”

Morgan Stanley and Citigroup have apparently both been waiting months for regulatory clearance, while other U.S. firms including Merrill Lynch, JPMorgan and Lehman Brothers remain in discussions with potential mainland partners.

“People familiar with the matter believe the issue of approvals for ventures involving U.S. firms has become tied to bilateral talks between China and the United States over market access,” Tucker writes. “Washington is lobbying Beijing to open its financial services sector to foreign groups while China wants its leading banks, after years of trying, to be allowed to set up and expand branch networks in the United States.”

U.S. firms have focused on stability following the sub-prime crises. With Beijing opening up the market to outside investment, the delays the U.S. firms are experiencing may actually help in the long term as the recent mainland stock market collapse is likely to bring valuations of local securities firms down significantly. “No one would turn away a Chinese securities license but I doubt any of us are in a panic to get one,” a U.S. banker told the FT.

How this plays out will be interesting to see, given that Beijing is heavily promoting its newest rising star, the Beijing Financial Street. The district, which is home to the offices for the China Banking regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission, has seen the likes of USB, JPMorgan and Goldman Sachs already move in. Close proximity to the Chinese regulators may help these U.S. firms get their approvals processed a bit quicker.

Further reading
The July/August issue of China Briefing, available from July 1, will focus exclusively on the Beijing Financial Street and the Chinese banking industry. Please click here for a complimentary subscription to the magazine.